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Equity Residential (EQR), Avalonbay (AVB) To Buy Archstone For $16B From Lehman Brothers

 November 26, 2012 04:27 PM
 


(By Balaseshan) Equity Residential (NYSE: EQR) and AvalonBay Communities Inc. (NYSE: AVB) have agreed with Lehman Brothers Holdings Inc. to buy, for about $16 billion, the assets and liabilities of Archstone Enterprise LP.

The assets and liabilities of Archstone Enterprise LP consists principally of a portfolio of high-quality apartment properties in major markets in the United States.

Under the terms of the agreement, Equity Residential will buy about 60% of Archstone's assets and liabilities and AvalonBay will purchase the balance about 40%.

[Related -Sector Detector: Is There Still Enough Fuel In The Bulls’ Tank?]

The combined purchase price for the assets consists of $2.7 billion in cash, 34.47 million shares of Equity Residential and 14.89 million AvalonBay's common shares both valued at $3.8 billion as of November 23, and the assumption of about $9.5 billion of debt and $330 million of preferred equity.

Of the debt to be assumed, about $8.6 billion is held by Fannie Mae and Freddie Mac, each of which has agreed to the assumption of this debt by Equity Residential and AvalonBay.

Equity Residential reaffirmed its 2012 normalized funds from operations (FFO) guidance range of $2.74 to $2.78 per share, while Street predicts $2.75 per share. The company currently anticipates no change to the 4% to 5% same store revenue growth expectation.

EQR expects that its 2013 Normalized Funds from Operations will be reduced by up to $0.04 per share because of the Archstone transaction, primarily due to the company's planned disposition activity.

[Related -Sector Detector: Mixed Messages Abound Among Earnings Reports]

On the other hand, AvalonBay reaffirmed its fourth quarter FFO outlook, including the impact of Hurricane Sandy, of $1.40 to $1.45 per share, while Street predicts $1.42 per share. For the fiscal 2012, the company still projects FFO of $5.45 to $5.50 per share, while Street predicts $5.45 per share.

AvalonBay expects to increase the common stock dividend for the first quarter of 2013 by a range of between 8% and 12%. This increase is supported by AvalonBay's current operating platform and recent operating trends, the expectation for continued favorable apartment fundamentals in 2013 and the acquisition of the Archstone portfolio.

The transaction is expected to close during the first quarter of 2013.

EQR closed Monday's regular session down 0.06% at $54.43, while AVB ended up 0.32% at $128.95.

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